Business
Polaris: Experts hail Emefiele, caution against banking sector crisis

OKEY ONYENWEAKU
Experts have expressed support for the effective and professional measures taken by the Governor of
the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele to save Skye Bank from sinking into an
unimaginable mess.
There appears to be a consensus that the timely intervention of the apex bank was strategic to
avert an imminent banking sector crisis, which would have destabilised the whole financial system at
a time of political and economic uncertainties.
Some analysts hinge their praises for the apex bank on the fact that no depositor of the bank will lose
money.
Polaris Bank, the legacy institution, which was set up to take over the assets and liabilities of defunct
Skye Bank recently took out pages of adverts in major national dailies to assure bank customers that
their savings and deposits were safe.
It will be recalled that in a move that took bank customers and even shareholders and other financial
industry stakeholders by surprise, the Central Bank of Nigeria (CBN), a fortnight ago announced the
winding up of business activities of the much harried and cash strapped Skye Bank Plc, which had
found itself undergoing major challenges keeping its operations healthy. The bank had repeatedly
borrowed money from the CBN despite a variety of soft support arrangements to keep it liquid and
viable. Apparently, the efforts were too little too late, thereby requiring the prudential authority to
pull the plug on the bank and set up its new incarnation called ‘Polaris’ as a so-called bridge
institution.
Emefiele had in 2014 when he was appointed as the helmsman of the CBN vowed to be professional
as well as ensure financial system stability. Industry observers appear to cheer his creative policies so
far to navigate the current challenging economic and political environment.
Commenting on the takeover, Dr. Afolabi Olowokere of Financial Derivatives Company Limited, told
Business Hallmark on a telephone interview that the CBN had taken the best option given the grave
circumstances instead of liquidation the bank.
Olowokere argued that the liquidation option was capable of wrecking the financial system and
resulting in confidence crisis.
‘’Depositors will lose their monies; there will be huge job losses and the financial system can crash if
the CBN fails to come in the way it did,’’ he extolled the timely intervention of the CBN.
A Lagos based shareholder activist, Mr. Boniface Okezie said whereas the option of saving the bank
from liquidation was impressive, he argued that the CBN was late in realising the danger the
condition of Skye Bank had become for the banking industry.
Okezie argued that Skye Bank, as weak as it was, should not have been allowed to acquire Mainstreet
Bank, which was three times its size. He concluded that further delay in taking the recent measure by
the apex bank would have plunged the financial system into a deep crisis.
For the safety of the financial system, Yinka Ademuwagun, a research analyst at United Capital said,
“Apex bank took over the board of the bank due to unacceptable corporate governance lapses and
its persistent failure to meet minimum thresholds in critical prudential and adequacy ratios. Overall,
all customers of Skye Bank will be automatic customers of the new bank with their accounts and
records duly purchased by Polaris Bank. Also, the CBN further stated that it plans on retaining the
existing board and management members while offering a new contract to all employees of the
defunct Skye Bank under the name of Polaris Bank.’’
The CBN admitted that because of the shaky outlook of the defunct Skye Bank, it had no option
than to intervene because results of forensic audit of the bank’s books revealed that it required
urgent recapitalisation as it could no longer continue to survive on life-support (indefinite
liquidity support).
The monetary regulator said the new lender, Polaris Bank, will operate as a bridge bank in the meantime.
A bridge bank is an institution created by a national regulator or central bank to operate a failed bank until a buyer can be found for its acquisition.
A bridge bank is usually established to ensure seamless continuity of banking operations. For the
continued survival of the new bridge bank, Polaris, the CBN has injected N786 billion into its
operations from which it will deduct an earlier support facility of just over N300 million.
Analysts observe Nigeria’s banking system has been here before.
A similar scenario occurred in 2011, when the Central Bank of Nigeria revoked the licences of three
failing institutions, namely: Afribank, Spring Bank and Bank PHB and in their place established the
bridge banks: Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited.
Local commentators observe that Nigeria would have experienced the most disastrous banking
sector crash in her history save for the timely intervention of the CBN with bridge bank solution,
which has paid off in ensuring stability in the system.
Industry stakeholders believe that there is a number of challenges ahead of Polaris Bank. Whereas no one doubts the ability of the regulator to stabilise the new lender and save depositors of the new financial
institution, shareholders are still confused as to the implications of what has happened.
It has been argued that the new bank will lose some customers (depositors), who are edgy about
their deposits and have lost some trust in the old bank and by extension its successor. They will
migrate to other banks. The challenge of huge non-performing loans hanging over Polaris Bank, industry
observers believe cannot be wished away, despite the huge amount the CBN has injected in the bank.
Details show that the CBN has pumped over N1trillion into the bank; over N300billion when it
sacked and replaced its management and the recent intervention of N786billion.
But industry analysts seem comfortable with the new arrangement given the developments of 2009
when the CBN under Sanusi Lamido Sanusi, the current Emir of Kano, Muhammadu Sanusi II took over three commercial lenders.
In their place, the CBN through the Nigerian Deposit Insurance Corporation, NDIC, established bridge
banks and transferred the assets and liabilities of the three affected banks to the bridge banks as
follows: Mainstreet Bank Limited (Afribank), Keystone Bank Limited (Bank PHB) and Enterprise Bank
Limited (Spring Bank).
The Asset Management Corporation of Nigeria (AMCON) after intensive negotiations with NDIC
had on August 6, 2011, acquired the three bridge banks and provided sufficient capital to restore the
banks to the level of capital adequacy stipulated for their operations.
Indeed, these banks were operated and returned to sound profitability and stability as claimed by
AMCON.
The CBN and AMCON succeeded in selling the three bridge banks to core investors.
The development in fact, also attracted praises for the CBN for helping in midwifing the whole
transaction. Some market observers noticed that: First, no depositor lost money. Second, the risk
assets of the banks were also not lost. Thirdly, the teeming staff of the banks retained their jobs and
not many people were thrown into the labour market to increase unemployment. Fourthly, the
acquirers of the bank never complained of not having value for their money’s worth. The CBN also
received accolades for ensuring stability in the financial system from that time to date.
Before recent developments and the bank’s management crisis, the stage had been set for an epic
battle to save it from its own past.
Weak asset quality, rising funding costs and increased customer wariness about the safety of their
deposits have conspired to squeeze out the bank’s balance sheet and tear current profit figures to
shreds as its management tries to restore confidence and recover bad loans.
Recall the bank erstwhile chairman, Mr. Tunde Ayeni and another director Dr. Festus Fadeyi had
borrowed huge loans from the bank to run other business concerns. Details show that while Ayeni
owes the bank as much as N36 billion and repaying only N6billion, Fadeyi owed N98billion.
Skye bank is an amalgam of five former fringe players including Prudent Bank, Eko International Bank
(EIB), Bond Bank, Reliance Bank and Cooperative Bank. They were categorized as laggards which did
not have adequate capitalisation. The bank maintains a branch network of about 260 with most of
them located in the highbrow areas such as Abuja, Lagos, Port Harcourt and Enugu.
The bank has a strong market share in the Western region. Reports once revealed that most of its
branches are in the country’s South-West, South-South and South-East regions, which account for 82
per cent of its branches and 18 per cent located in the North. It was also reported that the bank is
strong in federal revenue collections, where it accounts for 10 percent of Federal Inland Revenue
Service (FIRS) collections; internally generated revenue collection and inter-switch transaction. It has
the largest market share of more than 19 percent of Lagos State revenue collection.
After projecting a good image and the following action plans earlier in a conference, the CBN had vowed to watch credit risks associated with the key banking products must be understood and managed.
It also emphasized that maturity profile of loan products interacts strongly with liquidity risk
management. But Skye Bank went belly up in due course.